All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

OECD gives guidance on automatic information exchange and confidentiality

oecd.jpg

The OECD has released two new reports examining the automatic information exchange (AIE) and the protection of confidentiality of information that has been exchanged.

At June’s G20 summit in Mexico, the leaders of the world’s major economies released a joint declaration committing to lead by example in implementing the practice of AIE. This has driven AIE to the fore and made it a key part of political efforts to tackle tax evasion through inter-governmental cooperation.

The debate has also been advanced by tax justice campaigners, for whom exchange of information on request is not satisfactory. They want to see AIE become the norm.

“The on-request model of tax information exchange agreements is not sufficiently strong to tackle tax evasion,” said John Christensen, of the Tax Justice Network. “Automatic exchange of information makes it possible to tax capital and not just income and capital gains.”

The OECD report on AIE states that the open international architecture of today’s world, with taxpayers operating cross-borders while tax administrations remain confined to their national borders, “can only be sustained where tax administrations cooperate [and] one key aspect of international tax cooperation is exchange of information (EoI)”.

The report defines AIE as involving the systematic and periodic transmission of bulk taxpayer information by the source country to the residence country concerning various categories of income, for example dividends, interest, royalties, salaries and pensions.

According to that definition, Denmark has the highest number of AIE relationships, sending information automatically to 70 countries. The report also shows that eight countries – Australia, Belgium, Canada, France, Spain, Sweden, the UK and US – sent more than one million records to other countries within the latest 12 month period for which data is available (this timeframe varies from country to country).

The OECD report lists the following benefits of AIE:

  • It can provide timely information on non-compliance where tax has been evaded either on an investment return or the underlying capital sum.

  • It can help detect cases of non-compliance even where tax administrations have had no previous indications of non-compliance.

  • The deterrent effect of AIE increases voluntary compliance and encourages taxpayers to report all relevant information.

  • It helps to educate taxpayers in their reporting obligations, increases tax revenues and leads to fairness.

Confidentiality of information exchanged

One key concern with AIE is that the information being exchanged is kept confidential and is used only for the purposes allowed and intended. Therefore, from the sending country’s perspective, confidentiality and reciprocity, acknowledgement and feedback were the components identified as vital for successful and effective implementation.

The second OECD report seeks to provide guidance on how tax administrations protect the confidentiality of taxpayer information domestically and when using EoI instruments.

“Both taxpayers and administrations have a legal right to expect that information exchanged under EoI partners have adequate safeguards to protect the confidentiality of the information that is shared,” said the report.

“Confidentiality is a cornerstone for all functions carried out within the tax administration and as the sophistication of the tax administration increases, the confidentiality processes and practices must keep pace,” the report added.

Pascal Saint-Amans, the OECD’s director of the Centre for Tax Policy and Administration, said AIE is not intended to become a new standard, but that it is a growing practice among OECD and non-OECD countries and, as recommended by the G20, he expects a number of countries to move in this direction.

“The OECD has been working on AIE for decades to assist those of its members which use this means to exchange – on all or some elements of income,” said Saint-Amans. “In a nutshell, we work on AIE to assist those countries which are willing to use it, whether they are OECD members or not. We also understand that the agreements the US will be signing shortly to implement Model 1 under FATCA will boost AIE.”

When it comes to protecting taxpayer confidentiality, Saint-Amans said the Global Forum on Transparency and Exchange of Information will be key.

“I see a big role for the Global Forum in checking the quality of the protection of confidentiality in the coming months and years,” he said. “As you can see, we have also issued a report on this issue and we expect the Global Forum to also endorse it, giving it even greater acceptance.”

He also said treaty renegotiation is not necessary for the most part.

“Finally, there is no need to renegotiate treaties to implement AIE. For those who want to do it, Article 26 as currently drafted is good enough for that,” said Saint-Amans. “Moreover, the Multilateral Convention on Mutual Assistance can also be a good legal instrument to implement AIE. You may have noticed the growing interest in this instrument – there are now 37 signatories. We expect many more countries to sign it during the next Global Forum meeting in Cape Town at the end of October.”

More from across our site

The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
Businesses must ensure any alternative benchmark rate is included in their TP studies and approved by tax authorities, as Libor for the US ends in exactly a year.
Tax directors warn that a lack of adequate planning for VAT rule changes could leave businesses exposed to regulatory errors and costly fines.
Tax professionals have urged suppliers of goods from Great Britain to Northern Ireland to pause any plans to restructure their supply chains following the NI Protocol Bill.
Tax leaders say communication with peers is important for risk management, especially on how to approach regional authorities.
Advances in compliance tools in international markets and the digitalisation of global tax administrations are increasing in-house demand for technologists.
The US fast-food company has agreed to pay €1.25 billion to settle the French investigation into its transfer pricing arrangements over allegations of tax evasion.
HM Revenue and Customs said the UK pillar two legislation will be delayed until at least December 2023, while ITR reported on a secret Netflix settlement and an IMF study on VAT cuts.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree